US Postal Service 2012 Annual Report Download - page 46

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2012 Report on Form 10-K United States Postal Service- 45 -
claim payments and a $13 million, or 2.8%, decrease in medical claims payments compared to the year ended September
30, 2011.
In 2011, workers’ compensation expense was $3,672 million, an increase of $106 million, or 3.0%, compared to 2010. For
the year ended September 30, 2011, the Postal Service experienced a $118 million, or 18.4%, increase in compensation
claim payments and a $21 million, or 4.7%, increase in medical claims payments compared to the year ended September
30, 2010. The increase in compensation payments for 2011 continued to be pronounced after a reassessment of
employees on permanent rehabilitation or limited-duty status resulted in an increase in benefit payments to some
beneficiaries.
As note above, we are legally-mandated to participate in the federal workers’ compensation program that is managed by
the Department of Labor’s (DOL) Office of Workers’ Compensation Programs (OWCP) and governed by Federal
Employees’ Compensation Act (FECA). Under FECA, many types of workers’ compensation claims cannot be settled
through lump-sum payments, rather, compensation must be paid over many years. This, compounded by the cost of
living adjustments (COLA) granted by Federal Law to those claims, results in substantially higher costs to the Postal
Service than would likely be the case if claims management decisions were made by the Postal Service. In addition to the
constraints imposed due to the legally-mandated FECA program, actuarial estimations and projected cash payments that
will be paid well into the future also have substantial impact on our reported liability. Future cash payments must be
converted to present-day dollars, or discounted, by applying the current rates at which the liability could theoretically be
settled. Discount rates can fluctuate significantly from period to period with changes in the economic and interest rate
environment. Even a very small change in discount rates can have a large impact, as a 1% decrease in rates at
September 30, 2012 would have resulted in a $2.3 billion increase of the liability.
For the years shown, the table below highlights the large differences between actual claims paid on behalf of Postal
Service workers’ compensation obligations compared to the total recognized workers’ compensation expense that
includes fluctuations in discount rates, inflation rate increases, and amounts that may not be paid until well into the future.
Workers' Compensation Expense
(Dollars in millions) 2012 2011 2010
$
3,729
$
3,672
$
3,566
1,373 1,290 1,145
$ 2,356 $ 2,382 $ 2,421
Years Ended September 30,
Total Workers' Compensation Expense
Claims Paid on Behalf of Postal Service's Workers' Compensation
Obligations
Expense Related to the Long-Term Portion of Workers'
Compensation
TRANSPORTATION EXPENSES
Transportation expenses are primarily comprised of contracted highway, air, and international transportation costs.
Transportation expenses in 2012 were $6,630 million, an increase of $241 million, or 3.8%, compared to 2011.
Transportation expenses in 2011 were $6,389 million, an increase of $511 million, or 8.7%, compared to 2010.
Transportation Expenses
(Dollars in millions) 2012 2011 2010
Highway $ 3,378 $ 3,343 $ 3,205
Air
2,259
2,110
1,977
International
950
886
641
Other 43 50 55
Total Transportation Expenses $ 6,630 $ 6,389 $ 5,878